For the last few years, this word has been thrown around so much that you can no longer ignore or deny its existence.
Yes, we are talking about cryptocurrency! As a layman and senior, you might find the whole craze confusing and overwhelming, and that is completely okay. The idea of a currency that does not exist in any physical form is baffling and rightly so. This is why we have put together this simple explainer to help you understand the complexities and intricacies of the booming crypto market.
So, what exactly is cryptocurrency?
Cryptocurrency is a form of digital currency secured by cryptography, making it almost impossible to counterfeit or double-spend. Even though it only exists electronically, you can use cryptocurrency to make payments and purchase goods, similar to paper currency.
You know how when you withdraw money from an ATM, the machine first checks if there is enough balance in your bank account? Here, your bank is the central authority that approves the transaction and ensures it is successfully completed. In this situation, you trust your bank to be fair and do right by you.
In the case of cryptocurrency, the verification of the transaction is done by hundreds of thousands of computers over the blockchain, which is a sort of a public ledger that is accessible and viewable by all. This process is called mining.
Peer to peer networks of computers manages cryptocurrency through open-source software, sans the governments or any other regulatory body’s involvement at any stage. The technology is extremely secure as the transactions are encrypted with 256-bit cryptographic keys. It is also decentralized – meaning no single entity is in charge of it.
And if you are wondering how and where cryptocurrencies are stored, we got you. Cryptocurrencies are stored in something called a ‘wallet’, which is accessible by using your ‘private key’ or simply – a super-secure password.
What are the different types of cryptocurrencies?
According to coinmarketcap.com, the crypto market is worth over $2.2 trillion as of December 2021.
Bitcoin was the first cryptocurrency to be launched in 2009, but since then several thousand new types of cryptocurrencies have cropped up. Considering that blockchain technology is open-source, literally, anyone who can code can come up with a new cryptocurrency.
Ether is currently the second-largest cryptocurrency by market value. Some other popular cryptocurrencies today are Litecoin, Tether, and Cardano. There are some that are inspired by memes or viral internet jokes. Dogecoin, for example, was inspired by the viral Doge meme. Despite being founded as a joke, this particular coin is endorsed by celebrities such as Elon Musk, Snoop Dog, Mark Cuban, and Gene Simmons, which has skyrocketed its value.
So, should you invest in cryptocurrency yet?
While investing in cryptocurrency might seem lucrative, there is no denying that it would be an extremely high-risk and, in some cases, unregulated investment. So, even though there is a lot of money to be made, it simply is not worth the risk, especially for seniors.
Until last year, the Indian government had offered no clarity on the legality of cryptocurrency in the country. However, while announcing the budget this year, the finance minister introduced a 30% tax on any income generated from crypto transactions. Although, the government continues to refrain from suggesting that the currency is legal.
Moreover, you simply cannot ignore the volatility of this market. For the unawares, cryptocurrencies experience huge fluctuations in their valuation time and again. Something as simple as a tweet can lead to a crash that can wipe out your savings. In May last year, Elon Musk announced that Tesla would no longer accept Bitcoin as payment, which erased as much as $365 billion from the market, according to multiple reports.
Can you imagine losing 30% of your portfolios at one go? As seniors, you don’t want to end up losing your hard-earned money at an age where you simply cannot earn it back.
If you are still keen to dip your toes into this market, make sure you invest a very conservation portion of your overall portfolio. Start slow and research your options, or better, hire someone to do it for you.
Seniors with a higher risk appetite may find it profitable to invest in cryptocurrency, but we suggest proceeding with extreme caution. And as they say, don’t put all your eggs in one basket!